Mike Parker: N.C. ‘tax reform’ begins in earnest this year

By Mike Parker / Columnist

Published: Sunday, January 5, 2014 at 08:09 PM.

Tax credits eliminated under the reform legislation include: credit for childcare expenses, special education tuition, credit for being permanently disabled, credit for property taxes on farm equipment and credit for donations of real estate for conservation purposes for those who do not itemize.

One change that will affect retirees is the elimination of the tax deduction on the first $2,000 of retirement income from sources such as pensions and individual retirement accounts. The deduction of $4,000 on government retirement incomes, with a few exceptions, is also gone.

I have mentioned only a few of the changes under the tax reform measure. You can visit the N.C. Department of Revenue website at dornc.com to learn about more changes on their way.

Tax year 2014 will prove interesting as we see these changes.

I just hope the New Year does not prove painful.

My guess is accountants will do a booming business over the next few years.

First, for a disclaimer: I am not an accountant or tax expert. I am just trying to make sense of changes that I — and all other North Carolina taxpayers — will face in 2014.

Even though most people who file tax returns are not accountants, we non-accountant types still need to pay attention to changes.

You may have already been advised to change your NC-4, the form that determines how much money should be withheld from your paycheck to pay state income taxes this year.

A couple of accountants I know have advised people to claim zero exemptions until we see how the new tax reforms will impact taxpayers.

In the last legislative session, the General Assembly made sweeping changes to the North Carolina tax code. When any government, business, individual or family tweaks numbers, that entity is usually in for a surprise at some point. The many tweaks in this bill are likely to be the good, the bad and the ugly.

In an effort to create a more attractive business environment in North Carolina, some of the changes affect the corporate tax rate. In 2013, the corporate tax rate was 6.9 percent. That figure will drop to 6 percent in 2014 and to 5 percent in 2015. If the state is able to meet or exceed its revenue projections, then the corporate rate may drop as low as 3 percent.

The rules governing personal income tax are more complicated. According to the CBIZ website, as well as an article in the Greensboro News and Records, North Carolina will essentially have a flat tax on personal income.

In 2013, this state had income tax tiers ranging from 6 percent to 7.75 percent — one of the highest in the Southeast. Under the reform, everyone will face a single tax rate — 5.8 percent in 2014 and 5.75 percent in the years after 2014.

Not only did the reform measure change rates, but it also changed deductions. For tax year 2013, the standard deduction for married couples was $6,000 and for single filers (or married filing separately) was $3,000. Head of household filers in 2013 received a $4,400 standard deduction.

All these figures change under the new law. The standard deduction for married filing jointly increases to $15,000. For head of household, the figure rises to $12,000. For single (or married filing separately), the new number is $7,500.

Despite increases in the standard deduction, the personal exemption disappears. For 2013, each personal exemption reduces adjusted gross income by $2,000 or $2,500. A family of four under the old tax code would have received a $6,000 standard deduction and at least $8,000 in personal exemption – total of $14,000. At the $2,500 figure, the total would be $16,000.

A family with four children loses because of the elimination of the personal exemption.

The child tax credit rises from $100 per child in 2013 to $125 per child in 2014.

Those who itemize deductions will find deductions for mortgage interest and property taxes capped at $20,000. I wonder how many people that cap will affect. My guess is only a few will feel that pinch.

Tax credits eliminated under the reform legislation include: credit for childcare expenses, special education tuition, credit for being permanently disabled, credit for property taxes on farm equipment and credit for donations of real estate for conservation purposes for those who do not itemize.

One change that will affect retirees is the elimination of the tax deduction on the first $2,000 of retirement income from sources such as pensions and individual retirement accounts. The deduction of $4,000 on government retirement incomes, with a few exceptions, is also gone.

I have mentioned only a few of the changes under the tax reform measure. You can visit the N.C. Department of Revenue website at dornc.com to learn about more changes on their way.

Tax year 2014 will prove interesting as we see these changes.

I just hope the New Year does not prove painful.

My guess is accountants will do a booming business over the next few years.

Mike Parker is a columnist for The Free Press. You can reach him at mparker16@suddenlink.net or in care of this newspaper.